A real trade deal or will pigs fly?

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In balmy Honolulu this weekend, political leaders are due to trumpet a major step forward in Trans Pacific Partnership free-trade talks.

Despite negotiators flogging through nine previous rounds of talks, from Ho Chi Minh City to Lima, no-one expects the announcement will be conclusive. But it will be progress of sorts.

These talks involve nine countries – New Zealand, Australia, the United States, Chile, Peru, Singapore, Malaysia, Vietnam and Brunei – but the big prize is ultimately a free-trade area for the whole Asia Pacific.

By 2025 such an Asia Pacific FTA could boost trade by US$862 billion (NZ$1.1 trillion), said a study published by the Honolulu-based East West Centre last month. That goal, says Professor Jane Kelsey of Auckland University, "to me is flying pig territory".

Proponents would prefer to call it ambitious, but there is little doubt it will be a major challenge to reach agreement among the nine, let alone the entire region.

A hint of the difficulty can be found in the rat's nest of trade deals already in place. The TPP, structurally, is an extension of the "P4" trade deal involving New Zealand, Singapore, Chile and Brunei, implemented in 2006, with the other five countries joining the group.

However, while P4 effectively eliminated tariffs on trade among group members, a mess of bilateral agreements covers trade with and among the other five, each with varying degrees of free trade.

The US has bilaterals with Australia, Chile, Peru and Singapore. Australia has bilaterals with New Zealand, Chile and Singapore. Malaysia has bilaterals with New Zealand and Chile. And so on.

In a submission to the US Trade Representative last year, US dairy lobbyist the National Milk Producers Federation explained why these deals would be a problem.

"Our agreements with Chile, Singapore, Australia and Peru were very carefully calibrated to take into account the particular concerns and sensitivities of each of our trading partners in order to maximise US export opportunities," it said. "We strongly urge our negotiators to respect the good work that has already been done on existing US [free trade agreements] by leaving their market access provisions untouched."

In particular, New Zealand's dairy industry should on no account be granted open access to the US, it said. "Gross revenues received by US dairy farmers would plunge by a cumulative US$20b over the first 10 years of the FTA if US dairy restrictions on exports from New Zealand are fully phased out in the TPP."

The strength of US fear can be seen in the high tariffs applied to dairy imports. On skimmed milk powder, for example, the US has a quota on imports of 5261 tonnes from all countries. Imports in excess of that attract tariffs of 86.5c a kilogram. On wholemilk powder, the over-quota rate is $1.092/kg. On cheddar cheese, 8300 tonnes is permitted from New Zealand on tariffs of 10-16 per cent; anything more gets slapped with tariffs of $1.50/kg or more.

For New Zealand, nothing less than complete removal of those tariffs will do. Indeed, a TPP that perpetuated trade tariffs would be a failure.

Last year New Zealand's dairy exports to the US were $711m, making it the third-biggest market for NZ dairy. However, it's not clear what a US free trade deal would be worth on dairy – Fonterra's group manager of trade strategy, Sarah Paterson, said she was not aware of any figures on that.

But if the US industry's stance has a grain of truth the benefits could be substantial.

Critics point to Australia's experience with the US after its free trade deal came into force in January 2005.

That agreement was far from comprehensive – beef, for example, would not get full duty-free access until 2023, while sugar was famously carved out altogether.

Despite the deal, however, Australia's exports to the US fell from A$17.9b in 2008 to A$15.2b in 2009 and A$14.5b last year. A sign free trade doesn't work? Maybe not – New Zealand's exports to the US also fell over the period, from $4.6b in 2008 to $3.8b last year, suggesting the US recession could be the main factor.

Of course, from the US point of view there would seem few attractions in a deal with New Zealand – our market is small and already open to US trade.

But the TPP isn't just about moving goods hither and thither across the Pacific.

As Stephen Jacobi, executive director of the NZ/US Council, describes it, "The new agenda is about `behind the border' – moving from the market model to market integration, to reduce business costs and enhance supply chain efficiency."

Ultimately, doing business around the Pacific could be as seamless as between New Zealand's North and South islands.

"Eighty per cent of New Zealand exports go to Apec economies and New Zealand plays a key role in thought leadership in Apec. That makes the series of meetings in Honolulu critical for our future."

The implications of this idea go way beyond reducing tariff barriers and stretch into areas many Kiwis see as no-one else's business. They include the way state drug buyer Pharmac operates and the ability of foreigners to own New Zealand land.

What changes are being contemplated in these areas is hard to say because secrecy surrounds TPP negotiations, although some aspects have come to light through leaked papers.

Kelsey is among several commentators to view this aspect of TPP with alarm.

In balmy Honolulu this weekend, political leaders are due to trumpet a major step forward in Trans Pacific Partnership free-trade talks.

"This agreement aims to reach much further behind the border than any previous agreement has done," she says. "That means imposing ... disciplines on the approach to domestic policy and regulation that parties to the agreement are allowed to use.

"That's a straitjacket about the way we are able to make policy and regulatory decisions.

"This is what worries me most, that people are not understanding this is about locking in the kind of neoliberal framework we've seen in New Zealand for the last 30 years, with pro-market light-handed approach to regulation, minimising the role of the state, that we have seen enough problems with, whether it's leaky buildings, or lack of effective mining safety standards, or the way the telecom sector is operated.

"There is a real problem that this agreement is designed for the corporations to be able to influence our domestic policy and regulation in a way that suits them.

"Parliamentarians – I despair at times – do not want to understand what the consequences are."

Concerns include provisions allowing companies to take legal action if government decisions unreasonably affect their businesses.

Such provisions have featured in international agreements for many years, notably in the European Union, and an example involved Dutch insurer Eureko, which used a Netherlands-Poland investment treaty to win compensation for Poland's failure to follow through on a privatisation deal involving state health insurer PZU.

Although these agreements are controversial, corporates such as New Zealand's Fonterra are all in favour.

In a 2008 submission on the TPP, Fonterra said it strongly preferred investor-state disputes to be subject to international arbitration, as in the free trade deal between the US and Chile.

In similar vein, US pharmaceutical companies want any future Pacific free trade area to limit the scope of state intervention in drug markets, a stance affecting New Zealand's Pharmac as well as similar agencies in other states.

In a leaked TPP document dated June this year, the US' negotiating position appeared to involve requiring state drug-buying agencies to publicly report on and justify every funding decision, as well as provide rights of independent review and appeal.

The effects of implementing such a policy are unclear – neither Pharmac nor the Government will comment – but critics fear an erosion of Pharmac's effectiveness, to the detriment of public health.

This weekend we may find out whether those fears are justified. We may also find out whether the high hopes for Pacific free trade can inch from dreams towards reality.

THE TPP AGREEMENT

What is it?

Talks are going on among nine countries in the Pacific area aimed at creating a free-trade zone.

Who's involved?

New Zealand, Australia, the United States, Chile, Peru, Singapore, Malaysia, Vietnam and Brunei.

Why are we talking about it?

After nine rounds of talks, an announcement on progress is due at this weekend's meeting of Asia Pacific Economic Co-operation leaders in Honolulu.

What are the benefits?

Ideally, the talks will substantially reduce or eliminate barriers to trade between TPP members, increasing the volume and efficiency of trade.

About 40 per cent of New Zealand trade is with the nine countries in the TPP, so this country has much at stake in the region.

Ultimately, it is hoped the TPP could be expanded to include major economies such as China and Japan.

The specific benefits for New Zealand remain unclear, however, because they depend on the terms of the deal, such as the removal of US tariffs on dairy products.

What are the risks?

Critics say the TPP will lead to a loss of sovereignty and damage important local interests such as Pharmac. Secrecy in the negotiations is seen by some as putting international corporate interests ahead of social interests.